A Massachusetts couple claimed their servicer failed to timely acknowledge and respond to a notice of error (NOE) after a foreclosure sale.
The servicer argued there was no private cause of action to sue for a RESPA violation, but the district court judge denied the defendant’s motion to dismiss.
The case is David M. Lucas and Louise Lucas v. New Penn Financial, LLC, d/b/a Shellpoint Mortgage Servicing (U.S. District Court, D. Massachusetts, No. 17-11472-ADB).
The background
The plaintiffs are the former owners of a home in Peabody, Mass. In 2013, David Lucas experienced serious health problems that led to economic distress and caused the couple to default on the loan.
In May 2016, their attorney, Brian Goodwin, filed a loss mitigation application with then-mortgage servicer Rushmore Loan Management Services, but received no response. On June 1, 2016, the mortgage loan servicer changed from Rushmore to defendant Shellpoint. After Shellpoint informed the couple that a new loss mitigation application was required, Goodwin submitted a second application to Shellpoint on Dec. 12, 2016. Shellpoint acknowledged receipt of the complete application via letter dated Dec. 14, 2016.
Even though the plaintiffs submitted their loss mitigation application through their attorney, Shellpoint continued to contact them directly through letters and numerous telephone calls. They did not receive a denial of their loss mitigation application, but were informed in March 2017, by an unspecified person, that a foreclosure sale had been scheduled for their property.
Several days later, Shellpoint informed the attorney the couple had been approved for a loan modification, that the modification paperwork would be sent shortly, and that the foreclosure sale would be postponed until completion of trial payments. However, neither the plaintiffs nor their attorney ever received the modification paperwork, and their attempts to discuss the situation with Shellpoint in late March and early April 2017 were unsuccessful. The couple was evicted after their house was sold at a foreclosure sale April 12, 2017.
Goodwin responded to the foreclosure sale by sending NOEs to Shellpoint on April 12 and May 26, 2017. The plaintiffs received a USPS return receipt showing that their April 12 notice of error had been delivered but did not otherwise receive a response to that notice. Shellpoint sent a response to the May 26 notice of error in June 2017 attaching a purported Jan. 11, 2017 letter denying plaintiffs’ loss mitigation application, but the couple had not previously received that denial.
The Jan. 11 letter asserted that plaintiffs’ “financial and other information indicates that although [plaintiffs] may have a hardship, [plaintiffs] do not qualify for a loan modification trial period plan. [Plaintiffs] are however conditionally approved for the foreclosure alternatives described below.”
The ruling
The plaintiffs first argued the defendant’s motion to dismiss should be denied because they did not receive a response to the May 2016 application that they sent to then-servicer Rushmore.
Judge Allison D. Burroughs dismissed that claim.
“The applicable regulations require a transferee servicer (such as Shellpoint) to acknowledge receipt of a loss mitigation application within 10 days of the date servicing transferred if ‘the period to provide the notice required by paragraph (b)(2)(i)(B) of this section has not expired as of the transfer date and the transferor servicer has not provided such notice.’
“Servicing of plaintiffs’ loan was transferred to Shellpoint on June 1, 2016, and as a result, Shellpoint had an obligation to acknowledge receipt only if the application was received by Rushmore after May 24, 2016 (such that the five days excluding holidays and weekend days would have fallen on or after June 1, 2016) and Rushmore had not acknowledged receipt as of June 1, 2016. The complaint does not make those assertions and therefore fails to state a claim that Shellpoint violated 12 C.F.R. § 1024.41(b).”
However, the judge allowed the couple’s second RESPA argument – that Shellpoint failed to properly respond to a NOE that a foreclosure sale was being conducted in violation of 12 C.F.R. section 1024.41(g) – to go forward.
“Shellpoint argues that there is no private cause of action for a violation of 12 C.F.R. § 1024.35,” she said in her opinion. “The difficulty in determining whether a private cause of action exists for violations of 12 C.F.R. § 1024.35 results from the absence of any reference to a private cause of action in 12 C.F.R. § 1024.35, the explicit reference to the private cause of action under 12 U.S.C. § 2605(f) in 12 C.F.R. § 1024.41, and the scope of 12 U.S.C. § 2605(f), which provides borrowers a cause of action against ‘[w]however fails to comply with any provision of this section.’ 12 U.S.C. § 2605(f). Not surprisingly, (with) the lack of regulatory clarity, courts disagree about whether such a private cause of action exists.
“The court concludes that 12 U.S.C. § 2605(f) provides a private cause of action for violations of 12 C.F.R. § 1024.35 for two reasons. First, the Consumer Financial Protection Bureau promulgated 12 C.F.R. § 1024.35 under 12 U.S.C. § 2605(k)(1)(E) and (j)(3), which provide that the CFPB ‘shall establish any requirements necessary to carry out’ 12 U.S.C. § 2605 and that a servicer shall not ‘fail to comply with any ... obligation found by the [CFPB], by regulation, to be appropriate to carry out the consumer protection purposes of this chapter.’ 12 U.S.C. § 2605(j)(3), (k)(1)(E). Because 12 U.S.C. § 2605(k)(1)(E) covers violations of 12 C.F.R. § 1024.35, a violation of section 1024.35 is actionable under 12 U.S.C. § 2605(f).
“Second, although 12 C.F.R. § 1024.35 does not specifically reference the private cause of action, the CFPB has noted ‘that regulations established pursuant to [12 U.S.C. § 2605] are subject to [12 U.S.C. § 2605(f) ],’ which provides borrowers a private right of action to enforce such regulations. Therefore, the motion to dismiss is denied as to Counts IV and V.”